What is VAT?

What is VAT?

What is VAT in the UK? VAT in the UK is a business tax levied by the government on the sales of goods and services.

VAT is charged on things like:

• business sales - for example when you sell goods and services

• hiring or loaning goods to someone

• selling business assets

• commission

• items sold to staff - for example, canteen meals

• business goods used for personal reasons

• ‘non-sales’ like bartering, part-exchange and gifts

These are known as “taxable supplies”. There are different rules for charities.

There are 3 rates of VAT and the rate your business charges depends on the types of products and services you supply - you can find out the VAT rates and where they apply here - https://www.gov.uk/vat-rates 

Standard rate

Most goods and services are standard rated (which is 20%). You should charge this rate unless the goods or services are classed as reduced or zero-rated.

This includes any goods below the distance selling threshold you supply from Northern Ireland to non-VAT registered EU customers. If you go over the threshold, you’ll have to register for VAT in that country.

Reduced rate

When you charge this rate can depend on what the item is as well as the circumstances of the sale, for example:

• children’s car seats and domestic fuel or power are always charged at 5%
• mobility aids for older people are only charged at 5% if they’re for someone over 60 and the goods are installed in their home

Zero rate

Zero-rated means that the goods are still VAT-taxable but the rate of VAT you must charge your customers is 0%. You still have to record them in your VAT accounts and report them on your VAT Return. Examples include:

• books and newspapers
• children’s clothes and shoes
• motorcycle helmets
• most goods you export from England, Wales and Scotland (Great Britain) to a country outside the UK
• most goods you export from Northern Ireland to a country outside the EU and the UK
• goods you supply from Northern Ireland to a VAT registered EU business - you can check if the VAT number is valid

If you sent goods to the EU from Northern Ireland, you’ll need their VAT number and paperwork proving that the goods have been sent within certain time limits (usually 3 months).

When does a business charge VAT?

A business needs to register for VAT when the taxable revenue for the business, over a rolling 12 month period, exceeds £85,000.

Once the business is registered for VAT it must charge VAT at the appropriate rate on it’s VAT-able supplies (ie those that are not exempt or zero-rated).

A business can also choose to voluntarily register for VAT before the revenue reaches that threshold. 

Find out more about registering for VAT here: https://www.annetteandco.co.uk/when-do-i-have-to-register-for-vat/